February 08, 2011

Social Entrepreneurship, Corporate Social Responsibility and Shared Value

Anti-business sentiment may have increased in the U.S. with the Enron scandal in 2001. It further increased as income inequality started to get news coverage and reached a high degree of notice with the economic crisis of 2008. In response to this trend first social entrepreneurship emerged as a topic of interest to the academic and philanthropic world. This was followed by increased corporate social responsibility (CSR) programs and now the idea of shared value.

Michael Porter, the famous Harvard Business School professor, in the January 2011 HBR has an article entitled "The Big Idea: Creating Shared Value". In the article Porter argues that corproate strategies must be adapted to service social needs. By combining the creation of economic value and serving social needs "shared value" is created. Porter argues that "for profit" companies are well suited to solve social problems while at the same time serving their shareholder's interest to maximize investor returns. In comparison with CSR programs, shared values are an integral part of successful corporate strategies. In contrast with the teachings of Nobel Laureate Milton Friedman, Porter argues that the purpose of the corporation must be redefined from focusing solely on profit to the better concept of shared value.

Porter makes only one reference to social entrepreneurship in the article, stating that such organizations are better able than non-profits to scale their endeavors and achieve sustainability. Setting aside the difference in stage of development and available resources, Porter most likely would see no difference between social entrepreneurship and corporations with strategies to produce shared value. In the end Porter basically argues that for profit companies in a "free" market are the most efficient method to solve social problems and create wealth.

What I like about Porter's concept of shared value is that I think it collapses the distinction between social entrepreneurship and entrepreneurship. There may not be a difference if the entrepreneurial company pursued shared value. I have always thought that the distinction was artificial or not meaningful. Collapsing the distinction also presents an answer to the perplexing question of whether social entrepreneurship organizations can scale to the multi-billion dollar level of revenues required to solve the big social problems. Social entrepreneurship organizations will either morph into for profit companies focused on shared value or they will be acquired by for profit companies who will then pursue shared value strategies.

While intuitively I think Porter's concept of shared value is the correct corporate strategy, I have two concerns:

Will Porter be able to develop a meaningful framework to differentiate CSR and shared value

Will the academic criticism of Porter, especially from the Friedman School, basically accuse him of putting a fashionable label (shared value) on activities which just create economic benefit through enhanced competitive advantage (the examples Porter cites in the article could easily be interpreted that way)

I have always thought that Friedman's views were misinterpreted and included an unstated belief that corporations had to be moral. Much anti-business sentiment is based on Friedman's teachings and perhaps Porter's article will open up a re-examination of Friedman.

I found the new article by Porter on the Entrepreneurialist blog, which provides a European and Middle Eastern perspective on entrepreneurship and social entrepreneurship.

Comments

Social Entrepreneurship, Corporate Social Responsibility and Shared Value

Anti-business sentiment may have increased in the U.S. with the Enron scandal in 2001. It further increased as income inequality started to get news coverage and reached a high degree of notice with the economic crisis of 2008. In response to this trend first social entrepreneurship emerged as a topic of interest to the academic and philanthropic world. This was followed by increased corporate social responsibility (CSR) programs and now the idea of shared value.

Michael Porter, the famous Harvard Business School professor, in the January 2011 HBR has an article entitled "The Big Idea: Creating Shared Value". In the article Porter argues that corproate strategies must be adapted to service social needs. By combining the creation of economic value and serving social needs "shared value" is created. Porter argues that "for profit" companies are well suited to solve social problems while at the same time serving their shareholder's interest to maximize investor returns. In comparison with CSR programs, shared values are an integral part of successful corporate strategies. In contrast with the teachings of Nobel Laureate Milton Friedman, Porter argues that the purpose of the corporation must be redefined from focusing solely on profit to the better concept of shared value.

Porter makes only one reference to social entrepreneurship in the article, stating that such organizations are better able than non-profits to scale their endeavors and achieve sustainability. Setting aside the difference in stage of development and available resources, Porter most likely would see no difference between social entrepreneurship and corporations with strategies to produce shared value. In the end Porter basically argues that for profit companies in a "free" market are the most efficient method to solve social problems and create wealth.

What I like about Porter's concept of shared value is that I think it collapses the distinction between social entrepreneurship and entrepreneurship. There may not be a difference if the entrepreneurial company pursued shared value. I have always thought that the distinction was artificial or not meaningful. Collapsing the distinction also presents an answer to the perplexing question of whether social entrepreneurship organizations can scale to the multi-billion dollar level of revenues required to solve the big social problems. Social entrepreneurship organizations will either morph into for profit companies focused on shared value or they will be acquired by for profit companies who will then pursue shared value strategies.

While intuitively I think Porter's concept of shared value is the correct corporate strategy, I have two concerns:

Will Porter be able to develop a meaningful framework to differentiate CSR and shared value

Will the academic criticism of Porter, especially from the Friedman School, basically accuse him of putting a fashionable label (shared value) on activities which just create economic benefit through enhanced competitive advantage (the examples Porter cites in the article could easily be interpreted that way)

I have always thought that Friedman's views were misinterpreted and included an unstated belief that corporations had to be moral. Much anti-business sentiment is based on Friedman's teachings and perhaps Porter's article will open up a re-examination of Friedman.

I found the new article by Porter on the Entrepreneurialist blog, which provides a European and Middle Eastern perspective on entrepreneurship and social entrepreneurship.